Berkshire sells J&J, P&G

NEW YORK (Reuters) - Billionaire Warren Buffett's Berkshire Hathaway Inc reduced stakes in health-care company Johnson & Johnson (JNJ.N) and consumer products company Procter & Gamble Co (PG.N) as he found high-yielding investments elsewhere, and suffered big paper losses by holding onto investments in big U.S. financial companies.

Berkshire (BRKa.N)(BRKb.N) lowered its stake in Johnson & Johnson 54 percent to 28.6 million shares in the three months ended December 31 and reduced its stake in Procter & Gamble by 9 percent to 96.3 million shares.

It also disclosed a new 8.74 million share stake in water treatment services provider Nalco Holding Co (NLC.N), worth $100.8 million as of December 31. Nalco shares rose 6.7 percent after-hours.

Buffett has deployed at least $11.6 billion in the last five months to buy convertible securities, preferred stock and debt issued by General Electric Co (GE.N), Goldman Sachs Group Inc (GS.N), reinsurer Swiss Re (RUKN.VX), jewelry maker Tiffany & Co (TIF.N) and others, all yielding at least 10 percent.

Berkshire's portfolio of U.S.-listed equities shrank 26 percent in the quarter to $51.87 billion from $69.89 billion.

But the company held onto 290.2 million shares of Wells Fargo & Co (WFC.N), although its value fell 22 percent in the quarter to $8.55 billion, and a 151.6 million share stake in American Express Co (AXP.N), whose value fell 48 percent to $2.81 billion. Berkshire's stake in U.S. Bancorp (USB.N) fell 7 percent to 67.6 million shares.

The big story is that he's not giving up on banks and financial institutions, said Michael Yoshikami, president of YCMNET Advisors in Walnut Creek, California, which owns Berkshire shares.

It shows his conviction that, once the deleveraging process is complete, companies with strong cash flow are going to be valued more highly by investors, Yoshikami added. He's getting 10 to 15 percent interest on money he lends and may be selling stocks to fund that. He has become the secondary lender of choice to the financial world.

Buffett, through his assistant Carrie Kizer, was unavailable to comment.

SHARES SLIDE

Berkshire disclosed its holdings in a U.S. Securities and Exchange Commission filing.

It is expected to disclose more about its investments, including those outside the United States, when it releases year-end results around the end of February.

Class A shares of Berkshire closed on Tuesday down $4,140, or 4.7 percent, at $84,000. Its Class B shares fell $90.03, or 3.1 percent, to $2,769.99.

Berkshire shares have slid 43 percent from their 52-week high last September 19. Investors have fretted about the falling value of Berkshire's equity holdings, as well as its long-term derivatives contracts that can suffer paper losses when equity indexes fall and junk bond defaults increase.

In Tuesday's filing, Berkshire also revealed higher stakes in hydraulics maker Eaton Corp (ETN.N), climate control systems maker Ingersoll-Rand Co Ltd (IR.N) and power generator NRG Energy Inc (NRG.N) and lower stakes in used car retailer Carmax Inc (KMX.N), oil company ConocoPhillips (COP.N) and health insurer UnitedHealth Group Inc (UNH.N).

Buffett has transformed Berkshire since 1965 into a $129 billion conglomerate with close to 80 companies selling such things as Fruit of the Loom underwear, Geico car insurance, Ginsu knives and See's candies.

(Reporting by Jonathan Stempel; Editing by Andre Grenon)